Govt’s indecisiveness poses threat to new investment

MUSHTAQ GHUMMAN

ISLAMABAD: Federal government’s indecisiveness on incentives in the new auto policy has reportedly put billions of dollars of new investment in the country on ice, well informed sources in the Engineering Development Board (EDB) told Business Recorder.

 EDB, sources said, has uploaded the draft auto policy, on its website to seek comments from the local auto sector stakeholders who believe that the draft policy has been tailored to deprive them of fiscal incentives.

A couple of months ago, Economic Coordination Committee (ECC) of the Cabinet headed by Finance Minister, Senator Ishaq Dar decided that the policy should be made public to get comments from stakeholders. Officials who till then had been keeping the draft policy close to their chest were ultimately forced to make it public. At least three companies M/s Nissan Corporation, Japan, M/s Norinco vehicle China, M/s China Changen Group- Ruba SEZ Group have expressed serious interest in investing millions of dollars each in auto sector as new entrants.

M/s Suzuki, one of the existing players has also submitted an investment plan to the government, according to which the company will invest $ 350 million in Pakistan.  The company says “ It is also ready to construct second plant in green field along with machining of major engine and transmission components such as cylinder head, cylinder block, crank shaft, cam shaft and transmission case in case of higher demand against current production capacity  (134,000 units in double shifts). For this purpose, M/s Suzuki has already acquired 77 acres of land next to the existing plant site.” The company intends to replace three of its models with new models and materialise investment plan on the following conditions: (i) up to 1000 cc, 10 per cent import duty should be applicable on all parts and components including A max parts;(ii) above 1001 cc, 25 per cent import duty should be applicable on all parts and components including A max parts; and (iii) import of used vehicles should be restrained i.e. to ban misuse of overseas Pakistan’s right to traders.

Insiders in the auto sector told this scribe that Pakistan Automotive Manufacturers Association (PAMA) has not yet sent its comments on the draft auto policy due to serious internal differences.

One of the auto sector insiders told Business Recorder that according to his understanding PAMA will ask for a level playing field. PAMA maintains that investment already on the ground should not be placed at a disadvantage vis-a-viz new entrants. Secondly, if any policy is made for the industry it should be discussed with the industry in its entirety. There are a lot of things that were never discussed with the industry. Policy is not exhibition of good writing skills nor based on common sense alone. Industry is much more than that. In other countries committees of professionals make such policies. But in Pakistan  policy making is exercised as a right by  those in positions of power without an iota of understanding of the intricacies of the business in that area. For example, the chapter on safety standards, nowhere in the world a country would have moved to ‘ADOPT’ the regulations . Nothing in this chapter has been discussed with the industry. For that matter the policy has not even been approved by ECC.

“Without any preparation or roadmap we are sailing in uncharted territory. We don’t know what are our roles and responsibilities. Just like Pakistan signed the WTO membership. We act first and contemplate later,” he added.

PAAPAM, in its comments said that the proposed scope for Greenfield investment by auto parts makers under Category C is highly restrictive and will fail to attract investment in domestic manufacturing.

 The Association further stated that to make the ADP successful, it is critical to make the following amendments to the eligibility criteria under category C:

Greenfield Investment in new manufacturing facilities made by local APM under “Technical Assistance Agreements” with global Tier-I & Tier-II auto parts manufacturers to produce vehicle components not produced before for any OEM/APM in Pakistan should also be eligible for Category C incentives

In addition to parts for Engine, Transmission & Suspension, there are several other components in the automobile sector that are hi-technology and/or capital intensive in nature. Therefore, the list of parts eligible for Category C incentives should be amended to include “critical components of Engine, Transmission, Suspension or any other vehicle component not produced before for any OEM/APM in Pakistan”

MKD operations

This is the first time that PAAPAM has heard of any incentives for MKD operations. This has not been a part of EDB’s consultation with PAAPAM over the last three and half years of deliberations.

The concept of MKD has not been elaborated in the ADP draft. It is extremely vague and highly prone to being misused to damage the domestic parts manufacturers.

PAAPAM would strongly request EDB to elaborate the following before taking this matter to the ECC:

-Definition of MKD?

-How many parts will comprise MKD?

-What will be the benefit of category A incentives for MKD operations for Pakistan auto industry?

-Why was MKD incentives not discussed with PAAPAM and other stakeholders prior to including it in the ADP draft?

 PAAPAM has also raised questions on import of 100% parts at prevailing custom duty applicable to non- localized parts for a period of 3 years in respect of buses, trucks and prime movers. It has also questioned import of non localized parts at prevailing rate of custom duty and localized parts at 17.5 % custom duty for a period of 3 years as in the case of passenger cars and LCVs.

All Pakistan Motor Dealers Association (APMDA) which deals with import of three year old used cars argue that the used cars trade is one of the stakeholders and suggested the government to regularize used car imports as a global business.